Obama threatens payroll tax veto over Keystone provision

President Obama has vowed to veto a GOP proposal that would attach the controversial Keystone XL pipeline project to his proposal for a payroll tax cut for working Americans.

Obama's opposition Wednesday essentially thwarts House Speaker John A. Boehner's effort to use the pipeline as a way to attract votes for the payroll tax holiday from reluctant GOP lawmakers. The pipeline from Canada to the Gulf of Mexico is a priority for Republicans, who say it will create jobs. Critics say it will cause environmental damage, and the president has postponed a decision on it until after the 2012 election.

"Any effort to try to tie Keystone to the payroll tax cut I will reject," Obama told reporters after a meeting with the prime minister of Canada.

"The payroll tax cut is something that House Republicans, as well as Senate Republicans, should want to do regardless of any other issues. The question is going to be: Are they willing to vote against a proposal that ensures that Americans, at a time when the recovery is still fragile, don't see their taxes go up by $1,000? So it shouldn't be held hostage for any other issues that they may be concerned about."

The tax break expires at year's end and GOP leaders have struggled to compile a package that could pick up enough Republican votes to pass Congress.

But the GOP leader was undeterred by the president's opposition. Boehner has been working behind closed doors to overcome a rift among Republicans that has divided the party on one of its core issues – tax policy. He is working to compile a broad legislative package that would include the payroll tax holiday, an extension of long-term unemployment benefits that also expire Dec. 31 and other measures.

"We are working on a bill to stop a tax hike, protect Social Security, reform unemployment insurance and create jobs," said Boehner spokesman Michael Steel. "If President Obama threatens to veto it over a provision that creates American jobs, that's a fight we're ready to have."

Republicans in the Senate have already rejected earlier attempts to approve the tax break, punting the issue to their colleagues in the GOP-led House. One of the GOP rank-and-file’s chief concerns has been that the tax break would reduce the revenue stream to Social Security, even though the funds would be replenished. The chief actuary for the retirement system said Wednesday the change would not affect the trust fund.

The Senate has rejected the Democratic proposal to pay for the tax break by imposing a surtax on those earning more than $1 million a year, as well as a GOP plan to pay for the costs with spending cuts elsewhere in the budget.

Boehner's plan is expected to include a mix of options that have been floated, including a pay freeze on federal employee salaries, prohibitions on millionaires receiving food stamps or unemployment benefits and others. He is also expected to attach the Keystone pipeline provision and another environmental measure that would roll back regulations on air emissions from boilers in an effort to attract GOP votes. The package is expected to be unveiled Thursday.

Obama cautioned against loading up the payroll tax break legislation with too many extras that Democrats do not support.

"My warning is not just specific to Keystone," Obama said. "Efforts to tie a whole bunch of other issues to something that they should be doing anyway will be rejected by me."

Obama told Democrats during an earlier closed-door meeting at the White House that he would stay in Washington until the payroll tax break was renewed.

"Our holiday gift to American families is not going to be a tax increase," said Sen. Richard J. Durbin (D-Ill.) after the meeting.